IndyMac Fails — Second Largest Bank Failure Ever!

Hot off the press! IndyMac Bank has just been ordered to shut its doors due to the bank’s failure today. As everyone has known for a while, the recent real estate downturn has seriously hurt banks that lent money out for mortgages that have gone bad. IndyMac is now a victim of this vicious cycle. This is from Yahoo Finance:

“The FDIC said the estimated cost of the California-based bank’s failure to its insurance fund is between $4 billion and $8 billion. The regulator said it will operate IndyMac to maximize the value of the firm for future sale.

IndyMac’s primary regulator, the Office of Thrift Supervision, blamed a senior lawmaker’s comments for causing a run on the deposits at the largest independent publicly traded U.S. mortgage lender.”

I think this pretty much sums up what can/will continue to happen as the real estate market and overall economy keeps slumping. As a side note, I get to see how a lot of banks operate and who they allow to receive loans (my fiancé is a loan officer). IndyMac was one of the loosest banks I have ever witnessed during the real estate boom of 2002-2006. I saw them give loans that just didn’t seem realistic to many people. Also, since I do a lot of short sales, I saw that IndyMac would often refinance people into loans that just didn’t make any sense at all. It’s no wonder they couldn’t pay back these loans, and that is exactly what brought down this bank.

Don’t be surprised if more bank failures occur over the next 12 months due to the very deep recession that real estate has been in. I don’t see any of the super large bank institutions going under — like Citi, JP Morgan Chase, or Bank of America — but banks that specialized exclusively in mortgages like Indy Mac and other smaller regional banks, especially those in regions of America where the real estate market has declined severely, may be in trouble.

This entry was posted on Friday, July 11th, 2008 at 4:48 pm and is filed under Financing, Miscellaneous. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.